ACIT., CIRCLE-9(1), HYDERABAD vs. RANGAREDDY DIST JUDL EMPLOYEE MUTUALLY AIDED COOPERATIVE SOCIETY, HYDERABAD

Succinctly stated, the assessee society which is a Credit Co- operative Society registered under the Andhra Pradesh Mutually Aided Co-operative Societies Act (APMACS-Act), had filed its return of income for A.Y. 2017-18 on 30.10.2017, declaring an income of Rs.21,18,480/-. Subsequently, the case of the assessee society was selected for scrutiny assessment under CASS and a notice was issued by the A.O. under Section 143(2) of the Act.

During the course of the assessment proceedings, it was observed by the A.O. that the assessee society had raised a double facet claim for deduction u/s 80P of the Act, viz., (i). U/s 80P(2)(a)(i): Rs.1,04,92,276/-; and (ii). U/s 80P(2)(d): Rs.1,20,81,643/-. The A.O., holding a conviction that as the assessee society was accepting deposits from the public at large and advancing the money so raised both to its members and non- members was a “Co-operative bank”, called upon it to explain its entitlement for deduction u/s 80P of the Act. In reply, it was claimed by the assessee society that it was not a co-operative bank. Elaborating on its contention, it was stated by the assessee society that it has three categories of members, viz., (i) Members;

Apropos the assessee’s claim for deduction u/s 80P(2)(d) of the Act, it was the claim of the assessee society that it was a credit co-operative society that had advanced funds to its members, and had parked with the Regional Rural Banks (RRBs) which were categorized as co-operative banks by the CBDT, only those funds which were not immediately required, therefore, the interest on the said deposits was duly entitled for deduction u/s 80P(2)(d) of the Act.

Apropos the claim of the assessee society for deduction of interest payment of Rs.13,46,051/- that was paid on the share capital as per its bye-laws, the assessee society claimed that the same was allowable as a deduction in its hands.

However, the A.O. did not find favour with the aforesaid explanation of the assessee society and framed the assessment vide his order passed u/s 143(3) of the Act dated 31.12.2019, wherein he declined its claim for deduction u/s 80P of the Act, viz

Aggrieved, the assessee society carried the matter in appeal before the CIT(A), who found favor with its contentions and u/s 80P of the Act as well as interest paid on share capital. For the sake of clarity, the observations of the CIT(A) are culled out as under: and 1269/Hyd/2024 ITA Nos.1264 and 1269/Hyd/2024 ITA Nos.1264 and 1269/Hyd/2024

The Revenue being aggrieved with the order of CIT(A), has carried the matter in appeal before us.

We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

Apropos, the declining of the claim of the assessee society for deduction u/s 80P(2)(a)(i) of the interest received from advancing of funds to its members, we find that the issue is squarely covered by the order passed by the Tribunal in the assessee’s own case for the preceding years viz., (i) A.Y. 2012-13 in dated 27.03.2018; (ii) ITA Nos.348 and 1322/Hyd/2012 for A.Y. 2008-09 and 2009-10; (iii) ITA No.136/Hyd/2014 for A.Y. 2010-11, dated 04.03.2015.

Apropos the observation of the A.O. that as the primary business of the assessee society is to accept funds from members, non-members (categorized as nominal or associate members) to be utilized for giving loans to members and in practice to non- members also, it falls in the category of a primary co-operative bank under Section 56(c)/(ccv) of Part V of the Banking Regulation Act, 1949, and thus, being a co-operative bank it was disentitled from claiming deduction under Section 80P(2)(d) of the Act, we are unable to persuade ourselves to concur with the same. We though are in agreement with the observations of the A.O. that with the insertion of sub-section (4) of Section 80P vide the Finance Act, 2006 w.e.f. 01.04.2007, the provisions of Section 80P would no more be applicable in relation to any Co-operative Bank, other than a Primary Co-operative Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank, but are unable to concur with him that the assessee society falls within the meaning of a “Co-operative bank”. Our aforesaid view is supported by the Hon'ble Supreme Court in the case of in the case of Mavilayi Service Co-operative Bank Ltd and others Vs. CIT, Calicut & Ors.,, AIR 2021 Supreme Court 612, dated 12.01.2021. The Hon'ble Apex Court in its aforesaid order had observed that for being considered a “Co- operative Bank” license from RBI is a sine qua non. It was further observed that the assessee society in the absence of RBI license cannot be treated as Co-operative Bank. For the sake of clarity, the observations of the Hon’ble Apex Court are culled out as under:

Undoubtedly, if one has to go by the aforesaid definition of “cooperative bank”, the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a cooperative bank, it is imperative to have a licence from Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a cooperative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80-P.” (emphasis supplied by us) 14. At this stage, we may herein observe that just because the assessee society had received deposits from non-members, it would not be disentitled from raising claim of deduction u/s 80P(2)(a)(i) of the Act. As Section 80P(2)(a)(i) of the Act contemplates a claim of deduction of the income of the assessee society from carrying out the business of banking or providing settled i.e., members or non-members, therefore, we find substance in the claim of the assessee society that the very basis for, inter alia, declining of its claim for deduction u/s 80P(2)(a)(i) of the Act was based on a misconstrued position of law by the A.O. We are of the view that once it is clear that the co-operative society is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle it from availing of the deduction. However, as the profits and gains from the credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be claimed as deduction u/s 80P(2)(a)(i) of the Act. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd and others Vs. CIT, Calicut (supra), wherein it was, inter alia, observed as under: